Unilever Industries P.Ltd., V. DCIT Circle 1(3),

ITA 5461/MUM/2004

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83629 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 21-08-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 19-07-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK SMT PARMINDER
• Keywords: Opportunity of being heard; Earning of tax free income; Retrospective amendment; Capital expenditure
• Section: 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , ! '#$% , & '( BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.5461/MUM/2004 ( ) ) ) ) / ASSESSMENT YEAR :2000-01 ./I.T.A. NOS.1409/MUM/2005 ( ) ) ) ) / ASSESSMENT YEAR :2001-02 ./I.T.A. NO.996/MUM/2006 ( ) ) ) ) / ASSESSMENT YEAR :2002-03 M/S. UNILEVER INDUSTRIES PVT. LTD., HINDUSTAN LEVER HOUSE, 165/166 BACKBAY RECLAMATION MUMBAI-400 020 DCIT, CIRCLE 1(3), MUMBAI (* & ./ + ./PAN/GIR NO. : AAACU 0791P ( *, /APPELLANT ) .. ( -.*, / RESPONDENT ) *, / / APPELLANT BY : ` SHRI PERCY PARDIWALA SHRI NISHANT THAKKAR -.*, 0 / /RESPONDENT BY : SHRI A.K. NAYAK SMT. PARMINDER 0 12& / DATE OF HEARING : 21.08.2014 34) 0 12& / DATE OF PRONOUNCEMENT : 27.8.2014 ' 5 / O R D E R PER N.K. BILLAIYA, AM: THESE THREE APPEALS BY THE ASSESSEE ARE DIREC TED AGAINST THREE SEPARATE ORDERS OF THE LD. CIT(A) FOR ASSESSMENT YEARS 200 0-01, 2001-02 & 2002-03. SINCE COMMON ISSUES ARE INVOLVED IN ALL T HESE THREE APPEALS, UNILEVER INDUSTRIES LTD. 2 THEY WERE HEARD TOGETHER AND DISPOSE OF BY THIS COM MON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 5461/MUM/2004 A.Y 2000-01 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO T HE TREATMENT OF THE PAYMENTS DURING THE YEAR TO THE FOLLOWING INSTITUTI ONS FOR TECHNICAL SERVICES RENDERED BY THEM AS CAPITAL EXPENSES IN NA TURE. 1) INDIAN INSTITUTE OF SCIENCE - RS. 45,37,678/- 2) INDIAN INSTITUTE OF TECHNOLOGY - RS. 22,65,805/- 3) ALL INDIA INSTITUTE OF MEDICAL - RS. 3,25,000/- 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING RESEARCH RELATED SERVI CES. THE RETURN FOR THE YEAR WAS FILED ON 21.11.2000 DECLARING TOTAL INCOME AT RS. 3,15,80,590/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING T HE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD PURCHASED SERVICES, THE FOLLOWING EXPENSES ON THE COLLABORATIVE PROJECT AS PER THE DETAILS FURNISHED BY THE ASSESSEE. NAME OF THE INSTITUTION NATURE OF PAYMENT AMOUNT INDIAN INSTITUTE OF SCIENCE COLLABORATIVE PROJECT 4 ,537,678 DR. C. MANOHAR - DO- 100,000 INDIAN INSTITUTE OF TECHNOLOGY - DO- 2,265,805 DR. I.V. NAGRAJ TECHNICAL CONSULTANCY 228,000 UNILEVER INDUSTRIES LTD. 3 ALL INDIA INSTITUTE OF MEDICAL SCIENCE COLLABORATIVE PROJECT 325,000 7,456,483 4. THE ASSESSEE WAS ASKED TO EXPLAIN THE AFOREMENTI ONED PAYMENT TO THE AFORESTATED PARTIES. THE ASSESSEE EXPLAINED TH AT THE PAYMENTS WERE MADE FOR COLLABORATIVE PROJECT BEING PURCHASED SERV ICES IN THE NATURE OF TECHNICAL CONSULTANCY. AFTER CONSIDERING THE SUBMI SSIONS AND THE AGREEMENTS WITH THE PARTIES, THE AO WAS OF THE OPIN ION THAT THE EXPENSES ARE NOT DIRECTLY IN THE NATURE OF REVENUE EXPENSES. IN THE OPINION OF THE AO, THE EXPENSES ARE INCURRED AS PER ARRANGEMENT FO R LONG TIME TO ACQUIRE KNOW-HOW TO GET ADVANTAGE OF ENDURING NATURE. THE AO TREATED THE PAYMENTS AS CAPITAL EXPENDITURE. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED ITS CLAIM. THE LD. CIT(A) PROCEEDED BY CONSIDERING THE AGREEMENTS WITH THE PARTIES AND CONFIRMED THE FINDI NGS OF THE AO. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. SENIOR COUNSEL POINTED OUT THAT ONE OF THE OBJECTS OF THE ASSESSEE COMPANY IS TO UNDERTAKE, ESTABLISH, PROVIDE AND CONDUCT SCIENTIFI C TECHNICAL AND INDUSTRIAL RESEARCH. IN FURTHERANCE OF ITS BUSINES S, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH UNILEVER PLC AND UNILEVER N. V. AS PER THIS AGREEMENT, IT WAS AGREED THAT THE ASSESSEE SHALL PR OVIDE SUCH SERVICES AS MAY BE REQUIRED BY UNILEVER FROM TIME TO TIME INCLU DING BUT LIMITED TO RESEARCH AND DEVELOPMENT IN THE AREAS OF FUNDAMENTA L RESEARCH. PURSUANT TO THIS AGREEMENT WITH UNILEVER, THE ASSESSEE PROCE EDED BY ENTERING INTO AGREEMENT WITH THE IMPUGNED PARTIES. IT IS THE SAY OF THE LD. COUNSEL THAT PAYMENTS MADE TO THESE PARTIES WERE VERY MUCH IN TH E ORDINARY COURSE OF UNILEVER INDUSTRIES LTD. 4 ITS BUSINESS AND THEREFORE ALLOWABLE AS REVENUE EXP ENDITURE. IT IS THE CLAIM OF THE SENIOR COUNSEL THAT CERTAIN RESEARCH W ORK RELATED WITH THE BUSINESS OF THE ASSESSEE WERE OUT SOURCED AND THE P AYMENTS HAVE BEEN MADE IN RESPONSE TO SUCH WORK OUT SOURCED. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE S AY OF THE LD. DR THAT THE PAYMENTS ARE NOTHING BUT TO ACQUIRE TECHNICAL KNOW- HOW/PATENTS FOR WHICH SPECIFIC PROVISIONS ARE THERE IN THE ACT THER EFORE THERE IS NO QUESTION OF RESORTING TO THE GENERAL SECTION 37(1) OF THE ACT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS PER THE ME MORANDUM OF ASSOCIATION OF THE ASSESSEE, IT IS NOT IN DISPUTE T HAT ONE OF THE OBJECTS OF THE ASSESSEE COMPANY IS TO CONDUCT SCIENTIFIC TECHN ICAL AND INDUSTRIAL RESEARCH. AFTER A CAREFUL PERUSAL OF THE ASSESSMEN T ORDER AND THE ORDER OF THE LD. CIT(A), WE FIND THAT NONE OF THESE AUTHORIT IES HAVE DISCUSSED THE RESEARCH AGREEMENT DT. 16.11.2000 WHICH IS BETWEEN UNILEVER PLC AND UNILEVER N.V AND THE ASSESSEE. UNDER THE HEAD SCO PE THIS AGREEMENT CLEARLY PROVIDES FOR THE SERVICES TO BE RENDERED BY THE ASSESSEE TO UNILEVER GROUP OF COMPANIES FOR WHICH FEES HAVE B EEN PROVIDED. WE, FURTHER FIND THAT THERE IS A SPECIFIC CLAUSE IN THI S AGREEMENT RELATING TO INTELLECTUAL PROPERTY RIGHTS. WE FIND THAT NONE OF THE REVENUE AUTHORITIES HAVE CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THIS AGREEMENT OF THE ASSESSEE. IN OUR CONSIDERED OPINION, THE MATTER NE EDS TO BE DECIDED AFRESH IN THE LIGHT OF THIS AGREEMENT DT. 16.11.200 0. 8.1 IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RE STORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH CONSIDERING UNILEVER INDUSTRIES LTD. 5 THE AGREEMENT DT. 16.11.2000 VIS-A-VIS OBJECTS OF T HE ASSESSEE AS PER MEMORANDUM OF ASSOCIATION , AFTER GIVING REASONABLE AND FAIR OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8.2. WHILE DECIDING THIS ISSUE AFRESH, THE AO IS AL SO DIRECTED TO CONSIDER THE ADDITIONAL PLEA OF THE ASSESSEE U/S. 3 5(1)(II) AND SEC. 35(1)(IV) OF THE ACT AS PER PROVISIONS OF LAW. GRO UND NO. 1 ALONGWITH ADDITIONAL GROUNDS ARE ALLOWED FOR STATISTICAL PURP OSE. 9. THE SECOND GROUND RELATES TO HOLDING THAT THE PA YMENT OF RS. 16,21,017/- MADE ON REGISTRATION OF PATENTS IS CAPI TAL IN NATURE. 10. IN OUR CONSIDERED OPINION, THIS ISSUE ALSO HAS TO BE DECIDED AFRESH IN THE LIGHT OF CLAUSE (III) IN THE AGREEMENT DT. 1 6.11.2000 UNDER THE HEAD INTELLECTUAL PROPERTY RIGHTS. THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE AO TO BE DECIDED AFRESH IN LINE WITH OUR DIRECTIONS HEREINABOVE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 10.1. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSE. ITA NO. 1409/M/05 A.Y. 2001-02 11. FOLLOWING PAYMENTS HAVE BEEN CONSIDERED AS CAPI TAL IN NATURE: THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPELL ANT DURING THE NORMAL COURSE OF BUSINESS HAD MADE PAYMENTS DUR ING THE YEAR TO THE FOLLOWING INSTITUTIONS FOR TECHNICAL SERVIC ES RENDERED BY THEM. INDIAN INSTITUTE OF SCIENCE RS. 25,31,500 INDIAN INSTITUTE OF TECHNOLOGY RS. 44,30,922/- ALL INDIA INSTITUTE OF MEDICAL SCIENCE RS. 10,03,000/- UNILEVER INDUSTRIES LTD. 6 HIND HIGH VACCUM LTD. RS. 7,00,000/- MADURAI KAMARAJ UNIVERSITY RS. 1,00,000/- RS.87,65,422/- 12. FACTS AND ISSUES BEING IDENTICAL WITH THAT OF G ROUND NO. 1 IN ITA NO. 5461/M/04 FOR A.Y. 2000-01. THEREFORE, ON SIMI LAR LINES AND FOR SIMILAR REASONS, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 13. WHILE DECIDING THIS ISSUE AFRESH, THE AO IS ALS O DIRECTED TO CONSIDER THE ADDITIONAL PLEA OF THE ASSESSEE U/S. 3 5(1)(II) AND SEC. 35(1)(IV) OF THE ACT AS PER PROVISIONS OF LAW. GRO UND NO. 1 ALONGWITH ADDITIONAL GROUNDS ARE ALLOWED FOR STATISTICAL PURP OSE. 13.1. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSE. ITA NO. 996/M/2006 A.Y. 2002-03 14. THE FOLLOWING PAYMENTS HAVE BEEN CONSIDERED AS CAPITAL IN NATURE. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPEL LANT DURING THE NORMAL COURSE OF BUSINESS HAD MADE PAYME NTS DURING THE YEAR TO THE FOLLOWING INSTITUTIONS FOR TECHNICA L SERVICES RENDERED BY THEM. INDIAN INSTITUTE OF TECHNOLOGY RS. 28,93,664/- INDIAN INSTITUTE OF SCIENCE RS. 29,31,802/- UNIVERSITY OF MUMBAI RS. 7,90,000/- ALL INDIA INSTITUTE OF MEDICAL SCIENCE RS. 1,42,200/- MADURAI KAMARAJ UNIVERSITY RS. 6,21,492/- NIMHANS RS. 7,00,000/- SOFIA UNIVERSITY RS. 10,02,917/- UNIVERSITY OF AGRICULTURE RS. 2,59,900/- UNILEVER INDUSTRIES LTD. 7 SCIENCE TATA INSTITUTE OF FUNDAMENTAL RESEARCH RS. 7,75,000/- 15. FACTS AND ISSUES BEING IDENTICAL WITH THAT OF G ROUND NO. 1 IN ITA NO. 5461/M/04 FOR A.Y. 2000-01. THEREFORE, ON SIMI LAR LINES AND FOR SIMILAR REASONS, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 16. WHILE DECIDING THIS ISSUE AFRESH, THE AO IS ALS O DIRECTED TO CONSIDER THE ADDITIONAL PLEA OF THE ASSESSEE U/S. 3 5(1)(II) AND SEC. 35(1)(IV) OF THE ACT AS PER PROVISIONS OF LAW. GRO UND NO. 1 ALONGWITH ADDITIONAL GROUNDS ARE ALLOWED FOR STATISTICAL PURP OSE. 17. THE SECOND GRIEVANCE RELATES TO UPHOLDING THE D ISALLOWANCE OF EXPENDITURE FOR EARNING TAX FREE DIVIDEND INCOME AT 5% OF THE DIVIDEND INCOME. 18. THE LD. CIT(A) HAS CONSIDERED THIS ISSUE AT PAR A-9 OF HIS ORDER WHEREIN THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS UNITED GENERAL TRUST LTD. 200 ITR 488(SC) AND ALSO THE DECISION OF THE HONBLE CALCUT TA HIGH COURT IN THE CASE OF NATIONAL INSURANCE CO. LTD. 159 ITR 314. W E FIND THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE FOR EARN ING THE EXEMPT INCOME, THEREFORE, THE AO WAS REQUIRED TO DISALLOW CERTAIN EXPENSES RELATABLE TO EXEMPT INCOME ON PROPORTIONATE BASIS F OR WHICH THE AO HAS DISALLOWED 5% OF THE DIVIDEND INCOME. THE DISALLOW ANCE BEING VERY REASONABLE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THIS GROUND OF THE ASSESSEE IS DISMISS ED. UNILEVER INDUSTRIES LTD. 8 19. THE LAST GRIEVANCE OF THE ASSESSEE RELATES TO T HE CHARGEABILITY OF INTEREST U/S. 234D OF THE ACT. 20. THIS ISSUE HAS BEEN CONSIDERED BY THE LD. CIT(A ) AT PARA-11 OF HIS ORDER. IT IS THE CLAIM OF THE ASSESSEE THAT PROVIS IONS OF SEC. 234D WERE INSERTED WITH EFFECT FROM 1.6.2003 WHEREAS THE INTI MATION U/S. 143(1) WAS RECEIVED BY IT PRIOR TO THIS DATE. WE DO NOT FIND ANY FORCE IN THE CLAIM OF THE ASSESSEE. IT IS NOW WELL SETTLED THAT PROVISIO NS OF SEC. 234D ARE WITH RETROSPECTIVE EFFECT. WE, THEREFORE, DO NOT FIND A NY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THIS GROUND I S ACCORDINGLY DISMISSED. 20.1. THE APPEAL FILED BY THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. 21. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2014 ' 5 0 4) & 6 7'8 27.08.2014 4 0 9 SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) / PRESIDENT & '( / ACCOUNTANT MEMBER MUMBAI; 7' DATED 27 TH AUGUST, 2014 . . ./ RJ , SR. PS UNILEVER INDUSTRIES LTD. 9 ' 5 ' 5 ' 5 ' 5 0 00 0 -1' -1' -1' -1' : ')1 : ')1 : ')1 : ')1 / COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. '<9 -1 , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. ' 5 ' 5 ' 5 ' 5 / BY ORDER, .'1 -1 //TRUE COPY// ? ?? ? / @ @ @ @ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI